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Retirement Savings: What To Do If You’re Behind

April 29, 2013
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You’re over 50—and you know you don’t have enough saved. Every time you hear a piece of advice about socking money away from retirement, it gives you chills. You try to ignore it, but it’s getting harder and harder every day.  Let’s face it: you’re in trouble!

But you’re in good company. The Employee Benefit Research Institute found that 36% of workers do not think they are doing a good job of savings for retirement—and 22% said they now are going to retire later than they planned.

Learn how to calculate if you’re saving enough, and if you’re not, read on to learn what professional financial advisors say you should do if you’re behind.

Move quickly

You’ve had your head in the sand for decades. Once you wake up, start taking responsibility. Lyman Howard, a San Francisco-based financial advisor, said people in their 50s and 60s must hurry and take advantage of the time they have left before retirement. “Our advice to them is that they must make the best use of the next five to ten years to make changes which will allow them to accumulate higher savings and reduce debt,” Howard said about Baby Boomer clients without a healthy savings profile. “So that if they lose the ability to work they are not locked into a substandard lifestyle for the rest of their lives based on those insufficient savings.”

Saving is important—more important than keeping the lights on

When you were younger, 401(k) contributions might have seemed like an optional expense. As you enter middle age, there simply are no more excuses not to save. Even if you plan to work into old age, you will be facing health care costs that will ramp up quickly. Financial advisor Alexey Bulankov said that he talks to clients about how putting money aside takes priority over all over expenses, including the electric bill: “We talk to Baby Boomers about planning for ‘certain things first,’” Bulankov said. “Retirement, healthcare costs, taxes and estate planning are the issues which will almost invariably come up for most of our clients, whereas there is a great degree of uncertainty associated other obligations. For example, their kids may opt to pay for their own wedding, work through college, or get the scholarship; their parents may opt to sell their house to pay for their own retirement and so on. ‘Paying yourself first’ means putting money aside for retirement goals before meeting all other obligations—including monthly bills.”

Remember to narrow the gap

Look around at what you do have, even if it isn’t much. Mystic, Conn.-based advisor Robert Henderson said Boomers should remember that retirement income comes from more sources than just a 401(k). “Confirm all income sources in retirement. Sometimes Boomers overlook certain things – pensions, accrued stock options or restricted stock awards, social security (especially the spousal benefit), retiree medical benefits, etc. And instead they just focus on their nest egg,” Henderson explained. “We need to make sure we look at all sources of income, and ways to possibly maximize those (delaying social security, lump sums vs. annuity on pensions, etc.). Sometimes we can narrow the gap a bit by maximizing each of these.”

Prepare for a “cliff retirement”

But if it’s really bad—if looking around for a pension or figuring out the right time to take Social Security isn’t going to cut it—you need to mentally prepare yourself for a diminished standard of living in retirement. It’s something Bonnie Sewell, a CFP based in Leesburg, Va., sees all too often. “I am seeing clients who are experiencing ‘cliff retirements,’” Sewell commented. “These are good people who started to save more or spend less too late in life.  The effect is that friends and family knew them to be living one way—in one case on $400,000 per year—but in retirement, these folks will experience going off a cliff in terms of lifestyle.  So someone previously living at $400,000 will now live on $80,000, because that will be all the income we can pull from available sources.” What does that kind of drastic reduction translate to? “This can mean an unexpected or unwanted move and not being able to keep up with an old crowd,” Sewell warned.

Knowledge is power

Preventing a cliff retirement from happening to you can be difficult, but ignoring the problem will only make it worse. “Changing behavior is hard, but if a person has a plan or target of where they need to get to, then they can put together a series of small incremental, yet achievable, steps to reach the end goal,” said Andy Tilp, of Trillium Valley Financial Planning. “Studies have found that focusing on a small, achievable goal is much more likely to be successful than being overwhelmed by one huge bodacious goal. The small steps could include things like increasing the 401(k) contribution by 1% and then doing it again in a few months, and again and again. That gives time to adjust to the slight decrease in income. Use the detailed cash flow analysis to identify areas where expenses can be cut.”

Don’t panic

“Neither panicking nor putting off the matter will solve it,” advised Jason Gerlach, managing director of Sunrise Capital. “Boomers should stop what they’re currently doing, take a breath, and then get organized with a full inventory of what they have, and sit down with someone who can help them objectively assess their situation. If there is indeed a shortfall in retirement savings, there are many immediate steps that can and should be taken, starting with a reduction in spending and an increase in saving.  It’s often psychologically challenging but it’s the single easiest way to get one’s retirement savings back in the right direction and almost everyone can review their expenses and find things that they don’t need to be spending money on.”

Jason’s advice is key: the time to be illogical is over. If you don’t have enough saved, you need to begin acting rationally and taking a cold hard look at the numbers, without letting your emotions take over. Remind yourself: at the end of the day, it’s going to be okay. “Look, we can almost always improve someone’s situation, and not trying seems truly crazy,” added Bonnie Sewell. “Besides, the majority of folks are in the same spot.  Why not get creative, try to improve it, and start pulling back the curtain on the great and powerful Oz that is personal finance so we don’t have a second generation unprepared?”


Nest egg image via Shutterstock